Choosing tech's heirs with care

It's not easy to imagine Apple Computer without Steve Jobs, or database king Oracle without its flamboyant co-founder, Larry Ellison.

But investors and customers should hope that someone inside those two Silicon Valley tech giants has done a lot more than just imagine a day when someone else is running the company. At some point, they'll have to deal with an issue nearly every tech outfit must face: What does a company do when the person who personifies it either cannot or does not want to remain the CEO?

Increasingly, companies are putting into play succession plans that they've been working on for years.

For every Apple or Oracle--where the potential heir to the chief exec's office is a mystery to the outside world--there are many other big tech outfits that have carefully and even publicly groomed the CEO-in-waiting. At many of these companies, CEO succession planning has been a meticulous process that's downright...old industry.

This year, tech companies have seen some major transitions. In April, Sun Microsystems co-founder Scott McNealy stepped aside as CEO, making way for longtime understudy Jonathan Schwartz to take the wheel. Bill Gates firmed up his post-Microsoft days in June, outlining plans for his last day at the company in 2008 as part of a gradual process that has unfolded over the past few years.

In fact, industry watchers say that lack of a publicly known succession line at some big tech companies shouldn't be all that surprising. What should be surprising, they say, is that in recent years so many big tech companies--Sun, Microsoft, Dell, Intel, Advanced Micro Devices and Symantec among them--actually have managed to pull off relatively smooth transitions to new CEOs. After all, this is an industry built by entrepreneurs who guide their companies with charisma, ideas and a good deal of hardheadedness.

"A lot of these companies depend very much on the personality and skills of just one individual, so the transition is not easy," said venture capitalist Mark Dubovoy of Leapfrog Ventures.

Much of the planning for future leaders takes place in ongoing conversations between the directors of a company and current executives, said Stephen Mader, vice chairman of executive search firm Christian and Timbers. Board members draw up criteria for their search by considering the current state of the company and its eventual goals.

This, of course, is a delicate matter, as most boards are loathe to share their decision-making process with the outside world before they are ready, Mader said. Not only do they not want to make the public think they are considering a change at the top, they do not want to set off a flurry of internal maneuvering for the job, he said.

"You're sucking the juice out of your organization while you're trying to run a succession," Mader said. Part of the problem is that only one person can win the spot as the heir-in-waiting. Those who fall short aren't the best fit for that company's CEO job, but are likely very talented executives who might choose to seek their fortunes elsewhere if snubbed during the succession planning process.

"General Electric can afford that, but your ordinary company can't, certainly not your typical technology company," Mader added. That said, McNealy, who adopted the Six Sigma management principles of former GE CEO Jack Welch, managed to pull it off.

The easiest way to plan for the inevitable transfer of power is to start the planning process when the company is still small, Dubovoy said. Since many technology companies are started by engineers or software developers, "almost by definition, the people that start those companies are unproven in terms of their management skills as CEOs," he said.

As a company grows, many venture capitalists insist upon succession planning: the strategy in which a professional manager is brought into the company at a relatively young stage to run the show, Dubovoy said. Recent examples include eBay, Yahoo and Google, companies where technologists latched onto a great idea, but veteran managers were seen as necessary to take those companies to the heights they currently enjoy.

Often, the CEOs also demand a good plan.

"Most CEOs--not all, but the majority of CEOs--think they should have term limits," Mader said. In practice, however, only about 20 percent to 30 percent of CEOs have such an arrangement, he said.

Also, bringing in outsiders often doesn't work. For every John Thompson, who succeeded Gordon Eubanks at Symantec and turned it into one of the largest software companies in the world, there are many who never quite fit in with a tech company's culture. Somewhere between 35 percent and 50 percent of outside managers will not fit into a young growing company for any number of reasons, Dubovoy estimated. This makes it harder for founders to cede control and delays the succession planning process until the inevitable arises: the company needs a new leader right away.

Sometimes, of course, succession can't be planned. Recent examples include Hewlett-Packard, which spent several months searching for current CEO Mark Hurd after Carly Fiorina was dismissed, and Computer Associates, which was forced to clean house after its CEO pled guilty to fraud charges. In those cases, directors turned to outsiders for leadership because there were no clear-cut successors and because difficult circumstances required a fresh approach. In CA's case, several new directors were also brought in, which can dramatically change the culture at the top of a company, Mader said.

Smooth transitions are often the result of corporate culture that has survived from the early days of a company's history, said David Hsu, a professor at the University of Pennsylvania's Wharton School of Business. "The decisions that are made early on are quite important in imprinting the culture" that will outlive the founders, he said.

Several companies--including ones that have gone through relatively recent exec transitions, such as Intel, Sun and Microsoft, and ones that haven't publicly discussed the eventual departure of CEOs, such as Apple and Oracle--declined to comment for this article.

That isn't that surprising, Mader said. Directors "aren't interested in the outside world watching the process itself, they're only interested in telling the outside world what the results are," he said.

As for the two major companies keeping the world in the dark about succession, it's good to remember that Jobs left Apple from the mid-1980s into the mid-1990s--though few Mac fans would like a repeat of those years. Throughout the 1990s, Ellison retained his CEO title while then-President Ray Lane played a major role in running the company's day-to-day operations.

Certainly, there's no question who is in charge at the two Silicon Valley bellwethers today, but both companies have gone for a time without their larger-than-life honchos involved in the day-to-day business.

And while no Apple exec comes close to Jobs' public persona, in fairness, that's not the case at Oracle. Co-President Charles Phillips (Safra Catz is the other co-president and chief financial officer) has become a very public face for Oracle, meeting with customers around the world and speaking at many conferences. Does that mean he's the heir-apparent? It's not clear that anyone knows, but customers are at least familiar with him.

That's a good thing, because the failure to adequately plan for the future can put a big company at risk, Mader said.